Numsa bids to derail Transnet's megadeal

A deal comparable in size to the arms contract has been structured – perhaps deliberately – to enrich select individuals, the National Union of Metalworkers of South Africa says in a report it recently submitted to the public protector, claiming that a R50‑billion Transnet locomotives contract will cost workers and the economy dearly.

Nonsense, says Transnet, which has already finalised the deal. It says the benefits will be substantial and quick, and that everything was scrupulously honest.

To complicate matters, Numsa workers at Transnet’s Ngqura container terminal in the Coega industrial development zone in the Eastern Cape are currently on strike.
There have been instances of violence and offers of cash for information on criminal action related to the strike.

The Numsa report, which the union hopes will form the basis of an investigation by the public protector, is confidential, as are the details of any such investigation.

In the 60-page report, a copy of which was obtained by the Mail & Guardian, Numsa completely dismisses the official reasons for the massive locomotive tenders being awarded to foreign companies rather than local ones.

“The real reason and the reality, however, is that the current ownership status of these [local] companies makes it difficult to put in place a patronage network that will ultimately benefit the decision makers,” Numsa says.

The union alleges the deal, as it stands, will lead to:

The outflow of much-needed foreign currency;

The emergence of a state-sanctioned monopoly that will produce locomotives at uncompetitive prices;

The loss of potential export markets in Africa and elsewhere as a result of that manufacturing monopoly;

The further entrenchment of corrupt patronage networks; and

Cost overruns on the project and the inevitable taxpayer-subsidised bailouts for Transnet.

Numsa identifies two different ways in which it believes largesse will be distributed to what it sees as the well connected: through the black empowerment equity partners of the four companies responsible for manufacturing the locomotives, and by manipulating a database of smaller suppliers due to be awarded subsidiary work.

The union claims that outsourcing the locomotive work to four foreign companies with the idea of eventually making Transnet itself capable of building its own locomotives is irrational – and it is not alone in believing that.

Missed opportunityTechnocrats in the government’s economic cluster are “extremely aggrieved” over the way things have played out, Numsa says. “They consider the awarding of a large chunk of the contract to foreign companies as having been a missed opportunity for genuine industrialisation, because the contract should have been structured in such a manner as to allow for a consortium of South African companies to be awarded a slice of the tender.”

It adds that going local “would have assisted in building the long-term sustainable capacity of the existing private sector companies to move up the value chain and manufacture trains and locomotives that could compete on the international market”.

Other elements of the deal that Numsa questions are the opaque nature of the deal’s structure, the incorporation of empowerment partners with “absolutely no technical capacity” as well as other, seemingly needless, middlemen, and the inclusion of suppliers with dubious track records and who have been accused of bribery.

Transnet says it takes allegations that are intended to cast doubt on the deal seriously, although the allegations themselves are not that serious.

“These suggestions are absurd in the extreme and are intended to cause harm to Transnet’s reputation, which we hold dear and defend with vigour,” the Transnet spokesperson, Mboniso Sigonyela, said in reply to questions from the M&G. “We reject these claims with the contempt they deserve.”

Independent auditorsSigonyela said at least 150 people in Transnet were involved in adjudicating the locomotive tender, not counting the independent auditors involved in supervising the process.

“None of these multidisciplinary teams knew the outcomes of phases or stages of aspects they were not involved in.”

Transnet says the deal is consistent with national industrial policy, will build local skills and expertise, and is expected to create about 30 000 jobs.

Transnet says tenders were closely watched

The report by the National Union of Metalworkers of South Africa concerns Transnet’s R50-billion procurement of 1 064 diesel and electric locomotives that the parastatal finalised in March.

The lion’s share (70%) of the orders went to two Chinese manufacturers – China South Rail (359 units) and China North Rail (393 units). The remainder went to Canadian manufacturer Bombardier and American company General Electric.

Transnet said it had split the contract four ways because it was on a tight schedule. It also said it had carefully examined the bidders.

“The award follows an open and public tender process overseen by the board of directors, through a subcommittee of independent directors,” Transnet said in its announcement of the contracts.

“The evaluation of the bids was monitored by Transnet’s internal audit [team] to ensure that the process complied with the highest standards of governance as required by the Public Finance Management Act.”

Transnet has already procured 95 locomotives from China South Rail for R2.6-billion as part of an earlier tender process concluded in 2012.

The combined Transnet locomotive deals are comparable in size to the arms deal. Together, they represent one of the largest infrastructure investments in the history of South Africa.

The final locomotives are due to be delivered during the course of 2017.

The two Transnet locomotive tenders should not be confused with another giant rail-related procurement that was concluded last year: the R50-billion purchase by the Passenger Rail Agency of South Africa (Prasa) of rolling stock from a consortium led by French multinational Alstom.

Transnet falls under the department of public enterprises and Prasa is under the department of transport. – Lionel Faull